|
Posted by Phil Marti on April 8, 2008, 4:45 pm
Please log in for more thread options
> But line 6 on part I of form 2210 says "6. Withholding taxes. Do not
> include estimated payments", with "Do not" in bold.
Correct. Notice then that line 7 is the $1,000 balance due test. This is
the "balance due less than $1,000" safe harbor, which considers only
withholding.
> I created a
> scenario in my tax program: single filer with 200k income.
>
> Scenario 1: no estimated tax paid
> line7=200000 (wages)
> line43=192066 (taxable income)
> tax=49450 (tax)
> line64=0 (tax withheld)
> line65=0 (estimated tax)
> line77=2521 (penalty)
>
> Scenario 2: estimated of 60k paid (15k each quarter)
> line64=60000 (estimated tax, each quarter)
> line77=0 (penalty)
>
> Form 2210 in Scenario 2 is:
> Part 1.line1=49450 (tax due)
> Part 1.line5=44505 (90% of tax due)
> Part 1.line6=0 (withholding taxes, no estimated)
> Part 1.line8=10000 (tax due based on prior year)
> Part 1.line9=44505 (required annual payment)
> Part 1.line9=Yes (you may owe a penalty, but do not file unless a
> checkbox is checked)
>
> Part 2.checkboxes = none
>
> As you can see estimated tax payments are not used in determining if
> the prior year safe harbor is met.
How do you reach that conclusion? You haven't even figured penalty yet.
All you know at this point is that there was a required payment. There's no
conlusion yet drawn whether the safe harbor was met.
> Part 3.line10=44505 (required annual payment)
> Part 3.line12=60000 (estimated tax)
> Part 3.line14=0 (total underpayment)
> Part 3.line17=0 (penalty)
>
> So the penalty still turns to be zero, so it's as if the estimated tax
> was used in determining prior year safe harbor.
To quote our esteemed Vice President, "So?" How does that differ from what
I said: "Timely equal ES payments are included in determining whether the
prior-year safe harbor is met"?
My software then goes on to complete Part IV, where the zero penalty is
computed since all required installments were timely paid.
Finally, going back to line 9, we find that when the prior year safe harbor
is met through timely equal ES payments you don't have to file a 2210.
That's because IRS already knows about them.
>> Stop filing and paying long enough and you'll learn that your brokerage
>> can
>> withhold. They are not required, nor do they want, to voluntarily
>> withhold.
>
> Why don't they want to? Customers like it as it may help them meet
> the safe habor.
And we all know that brokerages, just like banks, exist only to satisfy
their customers.
All kidding aside, it goes back to that famous word that has three double
letters in a row: bookkeeping. It's a major hassle, and that's one reason
they don't want to do it. Even worse for a brokerage. What if there's no
cash in your account? Where are they going to come up with the cash to pay
the withholding? Banks especially want to hang onto your money rather than
paying it over to Uncle Sugar through withholding. After all, most people
don't withdraw from their interest-bearing accounts to pay the tax due on
those accounts' earnings. They come up with the money somewhere else.
I have some special historical insight into this since I was one of many
involved with implementing backup withholding at IRS. No matter how much
gin I apply to my brain cells, I haven't yet been able to blot out the
memory. Actually, my efforts have been partially successful. I can't be
100% sure that dividends were included in the legislative proposal story
that follows, but I know interest was.
TCMP (anyone remember TCMP?) had shown that there was abysmal reporting of
interest and dividend income on returns. Automated underreporter was but a
glimmer in its daddy's eye, and IRS proposed withholding on interest and
dividends as a legislative change. Bob Dole (R-KS), then chairman of Senate
Finance, liked it. Financial service providers hated it and went to DEFCON
5 with their lobbyists, a/k/a campaign cash spigots.
They managed to kill automatic withholding. But we Kansans can get nasty
when you rile us. Thus was born backup withholding, and more than one rumor
had Bob Dole saying, "That'll make 'em wish they had universal withholding."
--
Phil Marti
Clarksburg, MD
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
| 
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap